Civil Service Alpha or Partnership?

Johnsti

Hi
I start a new job with HMRC next week (new employee). My natural instinct, having spent most of my life in the Local Government Pension Scheme, is to opt for the security/certainty of a DB pension (Alpha) rather than DC (Partnership).

However, after much thought, I'm thinking I'd be better off in the Partnership Scheme.

I would like to be in a position to retire at 60yo. I will soon turn 53 so have 7 years to boost my pension in the hope of achieving this.

I have a deferred pension in the LGPS which is currently worth £7,200 pa + £19,200 lump sum (with 85 year rule protection). My only other pension is a very small NEST pension built up over the past 18 months. I am single with no dependents. I am assuming I will stay in this job until retirement.

I have calculated that with alpha in 7 years I will have an annual pension of £3,129 x 0.687 (early payment factor) = £2,149.62 pa.
Added to my LG pension = £9,349pa. I hope to have paid off my mortgage and have a reserve built up for emergencies. I plan to use the lump sum for holidays. I could live reasonably comfortably on this but would have to watch the pennies - a bit more would be very welcome.

With Partnership I understand the employer contribution is increasing to 14.75% (from 1/10/15) + 3% (employer) + 4.6% (my contribution equivalent to what I would pay if in Alpha) making a total of 22.35% of salary going into my pension. Working on contributions alone this would build up a retirement pot of £30,152. I could take 25% in year 1 tax free and in years 2-7 (when I receive my state pension at 67) I could have an income of £3,769 pa + £7,200 LGPS = £10,969 pa.

From 67 (I know this may rise) I estimate I will have state pension of £7343 pa + £7,200 LGPS = £14,543pa.

It seems to me I would be better to go for Partnership to boost my income in the early years of retirement when I will hopefully be best able to enjoy it.

1. What is a reasonable annual return to expect with the DC scheme bearing in mind I am not into stocks and shares and I'm unlikely to regularly check values and move money around? The £30,152 mentioned above is purely the amount being paid in.

2. Given my circumstances would I be better investing in a cautious fund(s) or in something with more risk?

3. Does it matter whether I go with Standard Life or Scottish Widows?

4. Am I missing any obvious flaws in Partnership or undervaluing the advantages of Alpha?

Any advice/views are welcome. Sorry this has been so long.

Annie1960

I can't advise on your main question, as I left the PCSPS a few years ago, in the Classic scheme.

However, I had both the Standard Life and Scottish Widows that I paid into myself, no employer contribution to these. These were additional to my main DB scheme.

When I got to the point of wanting an annuity last year from one or the other of these, I decided to move my funds from Scottish Widows. Even though their annuity payment would have been higher, there was the whole Scottish referendum issue.

Standard Life announced that, in the event of Scottish independence, they would move their offices to England, and hence deal in sterling. Scottish Widows were an absolute nightmare to deal with. They had no idea what they would do in the event of independence. I could have ended up being paid in Scottish Groats or something. As the independence issue has not really gone away, this is something for your to consider.

If you're in Scotland it's OK as you would be getting your pension in the same currency you already use. However, if you're in England/Wales, you would have additional costs for converting your currency into sterling.

This is maybe not the most important issue, but one for you to consider alongside other factors.

Johnsti

Thanks Annie that's something I wouldn't have thought of.

Johnsti

Thank you Mensch for you kind and considerate reply.

I humbly apologise for my lack of knowledge. Sorry to have offended you so much.

bigadaj

Johnsti wrote: »

Thank you Mensch for you kind and considerate reply.

I humbly apologise for my lack of knowledge. Sorry to have offended you so much.

This thread does seem to have taken an odd turn, Annie's response was a bit left field but mensch appears to be undergoing some sort of victor meldrew crisis or more probably given the day and hour is fuelled by some sort of intoxicant.

Trying to pull the thread back to your original post, defined benefit schemes are very valuable and difficult to beat with dc options. Depending on the exact terms and your circumstances then to but an annuity equivalent to the pension you quote would cost something in the order of £60-80k, though with no spouse to benefit from then it may be at the lower end of that range. In comparison investment returns are often quoted as being around 4% in real terms, so that crude comparison means it would be unlikely that the dc scheme would give you a better pension. In pure financial terms the db scheme is hard to beat but doesn't give you as much money early on in your retirement as you would prefer. In fact commuting the lump sum within the db scheme, if possible, would in all probabilities also be financially a better option, though move you further away from your preferred spend profile.

Given your timespan then life styling would suggest that your dc returns could well be lower, as you may well be heavy in cash or bonds given that you may not have time to recover any adverse volatility from equities, so the dc pot would only show a nominal increase of a few hundred pounds in that time.

hyubh

femalemonarchfemalecanine wrote: »

I point that out because had I known that 30 years ago, I would have done things differently.

In what way, out of interest...?

hyubh

femalemonarchfemalecanine wrote: »

Had I known that I would have to leave the scheme before I was 60 - and I have no interest in being in the Alpha scheme

Why not...? (Unless you mean, you would choose/have chosen Partnership instead.) If this was the private sector you'd likely have a rubbish DC arrangement to replace the closed final salary scheme, not the choice between a very good CARE arrangement (Alpha) or a very good DC one (Partnership).

kidmugsy

femalemonarchfemalecanine wrote: »

I just didn't - being younger and less cynical - imagine that the Government wouldn't honour what I was promised when I joined; and believe me there was no hint that the pension was other than a given 30 years ago..

Nobody promised that a particular pension scheme would be perpetual: it was always no better than "fingers crossed, it should last a long time". Suppose government did honour the original terms, in the sense of stopping pension payments some way beyond whatever age was the life expectancy of their retirees back when you joined the scheme, would you be happy with that? You'd be happy to risk many years of life with no occupational pension at all? Of course not. So you must accept that when things such as life expectancy change substantially so too will pension arrangements. Your cohort of retirees is going to be enormously costlier than anyone foretold when you joined the scheme. That changes everything. You should be grateful that the taxpayer will fund fully your accrued benefits in the old schemes - in some parts of state and local government in the USA, for instance, even accrued benefits are in danger of being defaulted on. As for Greece ......

hyubh

femalemonarchfemalecanine wrote: »

Actually when I joined I was told that was the pension I would get;

And you will still get the pension accrued to date, with a maintained final salary link.

then when the scheme changed to nuvos, which was for new joiners

Why is it fair for younger members to be in a much worser position that older ones, when the nature of the scheme is that current contributions are (in effect) paying for current pensions...?

Like an idiot I actually believed it.

You still have a fantastic scheme by current private sector standards.

I may well die before I even get a pension.

Very, very unlikely...

hyubh

kidmugsy wrote: »

You should be grateful that the taxpayer will fund fully your accrued benefits in the old schemes - in some parts of state and local government in the USA, for instance, even accrued benefits are in danger of being defaulted on. As for Greece ......

'Should be grateful' that accrued (as distinct from prospective) benefits are going to be respected...?

xylophone

then when the scheme changed to knives, which was for new joiners

A stab in the back?:eek: